Liberty Tax Founder Gets Boot, but He May Be Hard to Jettison

John Hewitt is out as CEO of Liberty Tax Service, the franchise he founded, but he is the sole holder of the company's Class B common stock and remains on the board.

That bombshell the franchising world felt today was Liberty Tax Service announcing the termination of John Hewitt, who is the founder, chairman and CEO of Liberty Tax as well as the founder of competitor Jackson Hewitt and a giant in the business.

Many companies announce a change in CEO in veiled or euphemistic terms, but Liberty Tax was unusually blunt. The parent company of the Virginia Beach, Virginia-based firm said Hewitt “was terminated yesterday by the company’s board of directors, effective immediately.”

“The company had engaged in a deliberate succession planning process, which resulted in Ed Burnot joining the company as chief operating officer as an interim step before assuming the role of CEO,” the statement continued. “The company is currently finalizing its succession plans; however, the board has determined that it is in the company’s best interests to terminate Mr. Hewitt at this time.”

It won’t be simple to jettison Hewitt, who founded the company in 1997. He is the sole holder of the company’s Class B common stock and remains on the board. The company has been negotiating to repurchase his Class B shares, which permit him to appoint a majority of the board, the statement said. “No such agreements have been reached,” the statement ended.

Mario Costanz, CEO of the small but growing Happy Tax franchise system and an outspoken critic of the large tax players, alerted FT to the news with a subject line: “Out with the old…”

When I asked him to comment, he said via email, “There is much speculation circulating, however I cannot comment on it. The industry is changing, that is certain. The heydays of old school brick and mortar tax offices are over. Consumers want a more convenient and professional technology-based concierge service. We are happy to be sitting as the only option in that space."

In an interview with me in March 2015, Hewitt said he expected to beat Jackson Hewitt that year for the No. 2 spot, and then would set his sights on the biggest in the tax preparation industry, H&R Block, founded by Henry Block and where Hewitt cut his teeth in the business.

“In my eyes I’ve always been No. 1. I’m kind of cocky, and I think I’m the second best in the history of the world, after Henry Block. But would you want that on your tombstone, he’s No. 2? I have to get to No. 1 or die trying,” he told me.

Liberty reported a 33 percent decline in net income for fiscal year 2017 in June. “In addition to the reduction in overall store and return counts, we saw significant under-performance in our corporate-owned locations,” Hewitt said at the time in a statement.